The new device is about the size of a smartphone. It connects to a new PayPal app that merchants can run on Apple iPhones and Android-based smartphones.
PayPal will launch the service in the United Kingdom this summer and in other European countries later.
PayPal's service is battling with many start-ups including Square, which is offering a free card reader that attaches to smartphones and handles payments for a flat 2.75 percent fee. Square's service is available inCanada.
PayPal added that it would charge merchants for the European PayPal Here device.